Addiction

Is there a man who can say
That he is free of addiction
Some can be seen, some can’t
Some harmful, some not
A man can chose to be any
Addiction defines what he chose to be
Is it fair to decide whats right for others
By your convenience and arrogance
Just because power is in your hands
Never gives you the right to do wrong
Get rid of addiction when the person wants
And leave him alone if thats his best company
A wise man once told me
If you de-addict someone, they live long
But they die the day they are forced to de-addict
Addiction is as natural as life and death
The only difference being it consumes everything in between.
No temples, churches and mosques
Wouldn’t we all be god if we never had addictions
Its what makes us human,
at the expense of ourselves and others.

Kettyolaanu Ente Malakha [Movie Review]

After years of staying up late and missing my routines –  I had taken a few resolutions  and trying really hard to stick to them. One of them is sleeping on time and sleeping enough.  But, once  in a while  – you want  to go back to who you are. Your roots. Your fitrat or  what really keeps  you alive.  As kid learnt guitar at elfwood, I sat on the sofa after a day full of running around for some useful and some not so useful things.  My eyes wandered over the main section of Prime Video and I settled on this Malayalam movie. Simply because I had watched the two recent blockbusters  –  Sarileru nekevvaru and Ala Vaikuntapuram lo , typical Telugu style( If you know what I mean;)  – I was craving for something very simple and free flowing.  Saw good review online, and  started  watching.  Night after putting kids  to bed –  I sat and finished the movie.

asifali

The storyline  is really simple. A overaged guy who’s never been with women gets married.  Not knowing whom to ask about consummating and being comfortable with women in general –  he falls into the overhearings between his drunk friends, all with failed marriages.  In that influence, he commits  marital rape which knocks the girl unconscious.  The beauty of the movie is the dialogues that comes  out of Asif Ali’s mouth after this  incident.  He does  not understand what he has  done, and asks  her not to make a big thing.  And  there  is  surrounding narrative where the women in  a scene tell that  this  is quite common, although people don’t faint on  a daily basis. And another woman wonders how and when she had the 3 kids she’s raising today.  Asif Ali’s character is  built pretty well –  he is mis informed, not with malicious intent.   Veena’s (wife) character realizes this slowly and painfully.   The  last scene left me  in tears, and forms the  crux of the  movie.  Absolutely brilliant.

I loved how  the native life is captured beautifully – the  costumes, the mannerisms  and everyday life.  Althrough the movie, I felt it was  happening somewhere around me and not on the  screen.   My only pet peeve was that,  the  character has his journey and changes his perspectives. However, not everyone can – and little help taken should have been part of the narrative.  It is good to watch, but nothing to take away for someone in that position.

The movie can be compared to a stream which is flowing slowly and steadily.  It grows over you – there are no loud moments, no melodrama and no judgements.  Just as water changes it course when it hits a rock –  Asif Ali’s character changes it’s perspective and learns his way with the women.

Review –  4/5

Have a good day and keep rocking!!

Avani Day Trip from Bengaluru

After a  week after the trip to Avani, here I am to chronicle the journey and the trek.  As  Vinod  was about to leave  on his usual business trips, we made an impromptu decision to make a day trip to Avani.

This is a place of GREAT historical significance to Hindus. A Lot of important scenes from the epic Ramayana have happened physically here. For example, this village  hosts the place  where  sita devi had left the world by breaking open the earth into  two and going into it,  patala ganga, ashwamedha yagam,  her delivery place, feeding place and the place where she did  her  chores.  The hair on my body stood up when the guide showed us the  finger prints of  sita, caused by continuous usage of kumkum from the kumkum rack.

Here are some pics from  the  trip –

 

As we reached Ramalingeshwara Temple@Avani foothill, a local approached us and proposed to be a guide to take us to the temple uphill.  We are glad we went with him. The trek was a moderate climb with around 800 steps.  To talk about it, my 60-year old father in law and 5 year old younger daughter also did the  full climb.  There are places we can rest, and the steps  have  been carved out of the mountain and rocks around.  The temple on the top has  a priest and is maintained  quite well.  We took a water bottle and luckily the weather was very pleasant.  On a hot day, it would be really  difficult to do the climb with the age groups we went with.  Was  it worth it?  Every second of it.

For breakfast and lunch, we picked places enroute.  For lunch, my special recommendation is Maiyas in  the mall on the  way back to Bengaluru.  It is detour, but given the quality that is  so doubtful on the roadside dhabas – it was  worth it.  We left at 8 AM and were home by 6 PM.  It is around 100 km from Bengaluru and a very highly recommended one day trip.

Have a good day and keep rocking!!

Personal Finance Management [Notes]

Below is the short summary of the PFM course I brought here.

 SECTION 1  – Basics

  • It takes money to make more money.
  • Savings is short term, value remains stable and lower returns in long term
  • Investments is long term, value moves up and down in short term,  potentially higher  returns over long term
  • Simple Interest :  Interest not re-invested, only Principal invested
  • Compound Interest :  Interest re-invested, along with Principal.
  • Future value of an investment  is calculated in Excel using FV Formula.

SECTION 2 – Budgeting

  • Budget : Basic is to track a month’s expenses.
  • And then, use this data to cut down expense by 5% for next month.
  • 50-30-20 :  50%  Needs,  30% Wants and 20%  Savings.

SECTION 3 – Goal Setting

  • SMART  Goals –  Specific, Measurable, Achievable, Realistic and Time bound
  • Arrange goals into – Short term(0-2 years),  medium term( 3 to 6 yrs) and long term ( > 6 years).  Plan investments for each goal.
  • http://www.tradingeconomics.com :  Macro Indicators across 20 Countries
  • Absolute Return –  Return on the Investment
  • Real Rate of Return –  Return on the Investment, after Inflation is counted out

SECTION 4 –  Investment Options

  • Three main parameters for an Investment :  Liquidity, Safety and Returns
  • High Risk, High Potential Returns. Direct Co-relation.
  • Bank Deposits
    • Fixed Deposits : Lumpsum once
    • Recurring Deposit :  Every month investment
    • FD fetches higher return than RD ( Future Value Formula Calculation)
  • Post Office Schemes
    • Mainly  for Rural Areas, where Banks aren’t available
    • FD and Monthly Investment Scheme
    • Post Office gives 5% bonus on the Investment after maturity
  • Bonds/ Debentures
    • Nothing but debt instruments.
    • Companies raising  money via debt from public
    • Promises Fixed Rate of Return for the debenture
    • Secure Debenture is when the Rate of Return is guaranteed, even when the company goes bankrupt
    • Unsecure Debenture is when Rate of Return is unguaranteed,  full investment is lost in case company goes bankrupt
    • NCD – Non Convertible Debenture. Cannot be converted to Equity.
    • Good Investment Option, compared to Bank’s Fixed Deposits.
    • Generally,  Debentures are listed on Stock Market. High Liquidity.
  • Corporate Fixed Deposits
    • Gives 3 to 4 percent more
    • Unsecured in nature
    • High Risk, High Potential Return Scenario
    • Possibility of company going bankrupt to be checked  before  Investing
  • Bullion ( Gold/ Silver  Investments)
    • Making Charges make Ornament purchase not a very wise decision
    • Gold and Silver move  in upward  and downward direction
    • Best Liquid Asset
    • Gold can be brought in e-format as well
    • For  physical purchase, include  locker rent as  expense.
  • Real Estate
    • Divisibility is a problem
    • Encroachment is an issue with land real estate
  • Equity Shares
    • Give share in the company for return in raising funds
    • Give dividends, at the mercy of the company
    • Must have Trading account, DeMAT account and Savings Account with money.
  • Mutual Funds
    • Mutual Fund Manager to manage the investing decisions
    • Units of  Mutual Fund
    • NAV :  Net Asset Value ( Price of a mutual fund)
    • Goes Up and Down
  • Financial Pyramid
    • As per the savings, investments to be planned accordingly

SECTION 5 –  Insurance

  • Insurance is NOT an Investment Vehicle
  • Life Insurance
    • Nominee gets the money once the insured passes away
    • Types
      • Term Life Insurance :  Pure Life Insurance,  money gets lost in case no death occurs within the term for which the Insurance is  purchased.
      • Endowment Policies : Nominee gets  Maturity Benefit, in case the insured is alive, at the end of the policy completion. No benefit after policy expiry.
      • Whole Life Policies :  Policy where the nominee gets the money even after the policy expiry.
      • ULIP ( Unit Linked Insurance Plan ) : The premium is invested in Stock Market.  ULIP is not safe option, because it gets invested in stocks
  • Medical Insurance
    • Works only when the Insured is admitted into the Hospital for atleast 24 hours
  • Personal Accident Insurance
    • Works when a person meets with Accidents
    • No mandatory in-patient rule
  • How much Insurance?
    • 5 Times of your earnings is the bare minimum requirement

SECTION 6 – Tax Saving Options

  • Section 80C gives deduction from Taxable Income  upto Rs. 1,50,000 for select Investments like
    • Life Insurance Premiums
    • Housing Loan Principal repayment
    • PPF ( max cap of 1.5 lakh per year)
    • ELSS ( Equity Linked Savings Scheme)
    • Bank Fixed Deposits ( Tax Saver FD)
  • 80 CCD :  National Pension Scheme
    • Additional Cover of 50K over and above the 1.5 lakh limit
    • Can be opened with any bank, lowers taxable income
  • 80 D :  Medical Insurance
    • Cap of 25k for self and family
    • Cap of 50k for self, family and parents
    • Cap of self, family and senior citizen parents 55k
    • Cap of self(senior citizen), family and senior citizen parents 60k
    • This is deducted from the taxable income, to arrive at net figure
  • 80 G : Tax Savings via Donation
  • 80 E :  Tax Savings via Education Loan
    • Interest amount paid on Education Loan is deduct
    • No upper limit
  • Incomes exempt from Tax
    • Long Term Capital Gains ( LTCG) on sale of listed equity stocks
      • > 1 lakh is taxed at 10%
    • Dividend received from domestic companies listed on stock exchange
      • > 10 lakhs is taxed at 10%
  • Section 24
    • Principal Amount Exempt from Taxable Income
    • Max amount of 2 lakhs for self occupied houses with loans
    • 100% saving on the loan, if the property is given for rent

SECTION 7 – Loans

  • Personal Loans –  Interest rates so high,  Personal Loans are not recommended at all.
  • Loan against FD – Also called OD against FD.  Interest charged at 1%  extra more than the FD promised.
  • Home Loan – Processing Fee,  Structure of EMI,  Home  Insurance against natural calamity and unforeseen situations, Additional Life Cover
  • Reverse Mortgage – For Senior Citizens.  A person can reverse mortgage their property upto 60% of the original amount.  Bank will now pay the  installments of the property and can only seize it when the senior citizens die.
  • Credit Cards  offer good  credit for a  given period of time, and are painful when the person cannot pay the bill on time.  Auto – Debit facility is really helpful.
  • Given a choice,  always  go for Credit Card. Debit card is spending what you already have vs Credit Card is spending what you might not currently have in your account.
  • Cibil Score – Credit Information Bureau of India Limited ( CIBIL) gives  you a credit score.  This score depends on Payment History,  High Credit Utilization,  Credit mix and Multiple Requests.

 

  • SECTION 8 – Retirement Planning
  •  Use Present Value excel function to calculate the amount that you need today, in order to spend a certain amount of money every month after retirement.
  • This need to be planned accordingly.

SECTION 9 –  Ponzi Schemes and MLM

  • Named after Charles Ponzi, a  fraudster from USA in early 1900s.
  • Typically, how this scheme works is –  Make Investment claims that are too good to be true, and honor them for first few times. Once the traction becomes really good, then flee.
  • Stay away from any claim that is too good to be true.  It most likely isn’t.

Review of the Course – 

In the end, Rachana tells us that she hopes she has given the jerk we all need to kickstart our financial planning.  I agree,  this course made me realize how many areas of my life need immediate review, followed by some serious corrections.  Tax Savings Scheme and Insurance top my list of things to review right now.  Everyone, who gets the financial planning done by better half, and earn but do nothing else for financial planning must see this course and plan things earlier and better.  I like how the course  is structured, and neatly done with short and impactful lectures.  We get all the vocabulary, and one can dig deep into the topic they need, based on what they learn here.

Rating – 10/10

Have a good day and keep rocking!

Basics of Stock Market For Beginners Lectures By CA Rachana Phadke Ranade ( Notes)

  • Myths about Stock Market –
    • Investments in Stock Market are very risky.
    • You need to have very strong knowledge about Finance
  • Fixed  Deposit(FD) earns you  Interest
    • Interest is Fixed
    • Taxable
    • Obligated to give Interest
  • Dividend
    • Return on Investment in Shares
    • Tax free, to a limit.
    • Company’s decision whether to declare dividend or not
  • LTCG
    • Long Term Capital Gains
    • If a Person holds shares  for more than an year and earns profit
    • Tax free, to a limit.
  • Face Value vs Market Value
    • Market Value is the market share rate as of today on the exchanges
    • Face Value is the original price at which Promoters of the company brought the stock
    • Promoter is a person or a group  of persons who  will  start the company
  • Stock Split
    • Face value of the Share is Split
    • Number of Shares will increase proportionately
    • Share Price will decrease proportionately
    • Example
      • Original FV –  2 Rs
      • Revised FV =  1 Rs
      • No. of Shares = 50,000
      • Revised Shares = 1,00,000
      • Value =  1,00,000 ( Intact : Face value X  No. of Shares)
      • Original Market Price = 5000
      • Revised Market Price = 2500
  • Who decides Share Prices?
    • Market Forces
  • Bonus/ Split / Rights  – Key Dates
    • Bonus Shares –  Free Shares issued by the company to the Investors.
    • Face Value remains intact,  no. of shares change and the total value remains intact. Market value changes, so more people can now buy shares.
    • cum ( cumulative) – dividend :  before issue of dividend
    • ex(   ) – dividend : after issue of dividend
    • Announcement Date : Date on which company announces bonus / split / rights
    • Record Date : Date on which you must have shares in your DeMat Account to enjoy bonus date
    • cum-basis : When a security is traded in cum price, it means that it incorporates the benefit of corporate action in its price
    • ex-basis :  When the security is traded in ex price, it means that the buyer has no longer the benefit of corporate action
    • Ex-Bonus Date : Date on which Shares start trading at the revised price, and no shares purchased after this date will be eligible for upcoming bonus
    • Price Adjustment :  Price adjustment done by stock market to traded price on the last day on which a security is traded  on cum basis in the market, after the close of trading hours.
  •  Key Terminology from moneycontrol.com website
    • LTP :  Latest/ Last  Traded Price
    • Demand and Supply for a stock will determine the stock price on BSE/ NSE. So, it may happen that the same stock is trading at different price on different exchange.
    • Stock Market Timings are 9:15 am to 3.30 pm.
    • 9:00 am to 9:15 am :  Pre-Opening Market Session
      • To absorb the volatility which arises, if markets open at 9:15 am directly
      • 9:00 am to 9:07 am :   Placing buy/ sell orders
      • 9:08am to  9:11 am  : Order Matching
    • 9:15 am to 3:30 pm : Market Session
    • 3:30 pm to 4:00 pm :  Brokers Session
    • 4.00 pm to  9:00 am next day : After market hours session
    • Gap Up Opening : If the share price opens at a price higher than the closing price of previous day
    • Gap Down Opening : If the share price opens at a price lower than the  closing price of previous  day.
    • Unch :  Unchanged,  markets  opening at the exact same price as closing price of the previous day.
    • The market value at which  a stock opens, is dictated by the trading orders placed during After Market hours.
  • Corporate Actions
    • Bonus
    • Stock Split
    • Rights
    • AGM/ EGM
    • Board Meetings
  • How can a person start investing? You need –
    • DeMAT account : Account to store the dematerialized shares
    • Trading Account : Account to buy/ sell the dematerialized shares
    • Savings Account : Account that holds the money
    • 3 in 1 account is common, offered by Banks with Securities arm
    • PAN Card, Address Proof,  Duly Signed and Cancelled Personalized  Cheque & a Passport Size Photo
  • Types of Securities Market –
    • Primary Market :
      • A Share getting listed on Share Market.  A Private Limited Company can have maximum of 200 shareholders.
      • Investors pay allotment money and Issuer Company issues the shares.  The company lists on stock market 3 days after the shares issue.
      • Transaction is directly between Issuer Company and the Investor.
      • Also known as Issue Market
    • Secondary Market
      • Also known as Securities or Stock Market
      • Transaction is between two Investors
      • BSE –  Bombay Stock Exchange
      • NSE  – National Stock Exchange
      • Both are  located  in Mumbai,  Maharashtra
      • Secondary Market –  Participants and Terminology
        • Stock Exchange – Provide a platform for investors to buy and sell securities from each other
          • Three National level Stock Exchanges in India –
            • BSE ( Bombay Stock Exchange )
            • NSE ( National Stock Exchange)
            • MSEI (MCX-SX) Multi Commodity Exchange
            •  Members
              • Stock Brokers :  Investors can trade in the Secondary Market only through the Members of the Stock market
              • Investors
                • RII : Retail Individual Investors ( ppl like you and me ). Investor applying for <= 2 Lakh rupees in IPO,  you come in RII Category.
                • HNI : High Networth Individual.  Investor applying in IPO for >2 lakh rupees, you come in HNI Category.
                • DII :  Domestic  Institutional Investor.  Indian companies. e.g. Banks, Insurance Companies, Mutual Fund Companies
                • FII / FPI : Foreign Institutional Investor / Foreign Portfolio Investor
              • Issuers : Company that issues shares, for a pre-determined  amount
              • Secondary Markets have three distinct phases : Trading, Clearing and Settlement.
              • Stock exchanges  in India feature an electronic-order matching system that facilitates efficient and speedy execution of shares
              • All stock exchanges in India follow a common settlement system. If Trading takes place on day T, Settlement happens on two business days after the trading day
              • All the trading done by the investors with the Stock brokers happens via the clearing house owned by that particular stock exchange.
              • NSCCL –  National Securities Clearing Corporation Limited. clearing house for NSE
              • ICCL –  Indian Clearing Corporation Limited – Clearing house for BSE
              • Metropolitan Clear –  Clearing house of  MSE
              • Depository and Depository Participant( DP)
                • For Securities to be traded in Secondary market, it is mandatory for the securities to be available in electronic or dematerialized form
                • NSDL ( National Security Depository Limited)  and CDSL( Central Depository Service Limited) are the two key depositories in India
                • Main Function is to convert Physical Shares to Dematerialized shares
                • Physical Shares -> Stock broker -> Company -> Depository -> Convert to e-format- > Return to company -> Return to stock broker -> Return to individual investor
                • Depository Participant is nothing but a Stock broker.
                • Depository maintains the  e-register of the entire register of members and provides to company as and when requested.
                • Volume – Number of shares which are traded on a specific day
  • Contract  Note
    • Within 24 hours,  Broker has  to dispatch a note stating the buy/sell activity to the Investor
    • Settlement date =   Trade Date (T) + 2 working days
    • Buyer gets shares and Seller gets  money only on Settlement date.
  • Trading Systems
    • Open Outcry – Traders gathering physically and shout/ bid and offer  prices
    • Online Trading – Traders will use electronic systems for trading. Done at BSE, NSE and MSEI
  • Order Types
    • Buy –  Buy shares
      • Limit Order :  Limit the order at a given price. eg. 2040  for a price with last traded price of 2053.  Investor bargains and does not offer to buy / sell at current market price
      • Market Price Order :  Order  where buyer/seller is ready to execute their trade at the current market price( without bargaining)
      • Stop Loss Order : Order placed by a buyer/seller at a price lower than his buying price / higher than his current selling price. The biggest advantage is that, losses will be limited.
      • After Market Order :  This is an order that is placed after 4 pm and before 9 am the next day.
      • IOC :  This is an order where the trader wants to immediately execute his buy/sell order. If it is not executed immediately, it gets  cancelled.
      • GTD : Good Till Day.  The order gets auto cancelled if it is not executed by the end of the business day.
      • GTC :  Good Till Cancelled.  These type of orders arent preferred by Brokers, it works exactly in reverse to GTD
      • An order can be edited or modified until order matching is done by the stock exchange.
  • Books Maintained by Broker
    • Order Book
    • Trade Book
  • Market Phrases
    • Bull Phase :  Upward Trends in the market.  Indicated in GREEN.
    • Bear Phase :  Downward Trends in the market. Indicated in RED.
    • Long on the market :  Bullish about the market
    • Short on the market :  Bearish about the market
    • Short-Sell :  Sell first, and buy later.
    • Intra-day Trading : Buy and Sell on the same day.
    • IEPF :  Investor Education Protection Fund
  • Short Sell Concept
    • Trade where Trader sells first and buys later
    • Preferred by Traders if they are bearish about the market
    • Share Auction : If a person does a short sell and does not square off his position by end of the day,  then his shares are auctioned.  Brokers participate in the Auction market on behalf of their client, in post market hours.  Any loss will borne by the Investor, but any profit will be transferred to IEPF.

 

Soups: Broccoli Peas Soup

This one has been on my menu list from a long long time. These days, as winter kicks in – season of soups starts at home. I try my hand at various soups – this one was a hit.

Ingredients

Onion – 1

Garlic – 5 to 6 pods

Brocolli – 1 medium

Green Peas – 100 gms

Almonds, soaked and peeled – 10

Cinnamon Powder – 1/2 tsp

Salt & Pepper – To taste

 

Soup

Recipe –

  1. Boil Brocolli, peas, onion, garlic and almonds in cooker.  Cook for 5 whistles.
  2. Cool down and blend smooth.
  3. Transfer back to stove and add salt, pepper and cinnamon powder.

Verdict –

Super Creamy and nice taste. This  soup does not need milk, almonds give it the creamy and the thick soup flavor.

End to end cooking time is 30 minutes , try it and enjoy!

Have a good day and keep rocking!!

 

 

Stock Trading & Investing for Beginners 4 in 1 bundle course – Udemy [ Notes ]

Section – 1 : Stock and Stock Market Basics

1) Owners Equity  = Net Assets

2) Net Asset =  Total Assets –  Total Liabilities

3) Lenders expect Interest + Capital.

4) Share =  Partner’s percentage interest in owner’s equity

5) Stock = Fixed percentage of ownership in a company or business.

6) Stock Market =  Marketplace for stocks, where willing buyers and sellers of stock come together to trade with each other.

7) Trading can happen on a Stock Exchange or as a private exchange between two people.

8) Stock Market is  nothing but a platform for network of computers where buyers and sellers transact in any security.

9) Trading of stock happens in Primary Market or Secondary Market.

10) Primary Market is the market  where debt or equity securities can be issued by the businesses. The business is  known as the issuer of the security. The issuer receives funds from the investors, which may be individuals or institutions.  Since the investor buys security directly from the issuer, this market is called Primary market or new issue market.

11)  Going Public means allowing Public to buy securities for the first time, in a business.

13) Primary Market Issues –

> Public Issue :  Issued to members of public. May be IPO of FPO ( Follow-on PO)

> Private Placement : Qualified Institutional Placement ( Involves bidding from Qualified investors ), Preferential Issue( To identified investors )

>  Rights and Bonus Issue : Securities are  issued to existing investors. Rights is when Investors pay for new Securities, bonus is when shares are issued without payment.

12)  All the securities issued in the Primary Market get traded in the Secondary Market.

13) A Stock’s price reflects this continuous evaluation by Investors and also their expectation of performance of the business.

14) Stock Market Participants

– Retail Investor ( Individual investor with surplus money. Basic knowledge, and usually acts on his knowledge or financial advisor. Simple Investment strategy. Less Quantum.

— Institutional Investor ( e.g. Banks, Mutual funds, etc). Specialized knowledge and skills in investing. Complex investment strategy, and achieve results using derivatives. Quantum is large, and have fund mangers to manage the corpus.

15) IPO stands for  Initial Public Offering.  Its first public offer, and Post IPO – Shares become widely available for investment, and new types of investors become shareholders.

16) IPO ->  Fresh Issue  (  Company issues new  shares, Capital  goes up, % share goes down),  Offer for Sale( No new  shares, No Capital impact, Offered % shareholding goes down, not offered shares percentage stays)

17) FPO -> Follow-on Public Offer is made by companies that are already listed on the exchange, when they require additional capital for growth, or restructure capital by retiring debt.

18) Primary market is where securities are issued for the first time.  Once that process is complete, these securities  become available to be traded on stock exchanges.  The universe of securities that you can trade on stock exchanges actually constitute a secondary market.

19) The main functions of a secondary market are liquidity and price discovery.  Liquidity means the ability to buy and sell shares, as per the shareholder’s wishes. Price discovery means, the price at which the business can raise more funds, because Secondary market performs constant evaluation of the future progress of the company.

20) Data  from  Secondary Market is also used to generate benchmark indices.  e.g. Sensex and Nifty in India.

21)  In Secondary market, the stock prices are the result of continuous buying and selling of various types of participants in the market. This includes retail investors, institutional investors, short term and long term traders and market makers. It is set by the collective wisdom of all the participants.

22) There are two ways in which an IPO may be priced – Fixed Price or Dutch.  In fixed price issue, company decides the price, in consultation with Lead Manager.  The price is decided based on the expected performance and  price of  shares of comparable companies.  In Dutch or Book Built Issue, price is decided by Auction. The company and the lead managers set a floor price or a price band, and finally decide on a cut-off price.

Section – 2  : Stock Exchanges, Financial Intermediaries  and Stock Index

  1. Trading in secondary markets happens on stock exchanges. Its  a platform where willing buyers and sellers transact on various financial securities,one of them being stocks.
  2. Any person who wants to buy or sell stock can do only via Stock brokers or Trading members.  Members  of exchange can be trading, clearing or both.
  3. There are three phases  in a secondary market transaction –
    1. Trading
    2. Clearing
    3. Settlement
  4.  Trading is where actual buying and selling of securities happens. All Investors route their orders to brokerages. They collect orders from various investors and route it to exchanges. Clearing process is  a process of identifying which securities and in what quantities is owed to which buyer, the clearing process also identifies what amount of payment is owed to the seller for this transaction. Clearing process is owned by Clearing house. Settlement process is process where securities and payments are made to respective investors.
  5.  Various Intermediaries
    1. Trading Members – Stock brokers and affiliates( sub brokers)
    2. Clearing House – Independent party that conducts the  clearing process
    3. Depository & Depository Participant – Depository maintains a list of all the securities you own, and facilitate the exchange of securities. Only electronic or dematerialized securities can be traded. Depositories appoint depository participants who act as intermediary between the depository and the investors . so, every investor is required to hold a DEMAT account with the  depository participant. The settlement of securities is done in this DEMAT account.
  6.  Securities : Securities represent terms of exchange between two parties. Issued by many organizations such as Corporate, Government, Banks  and Financial Institutions. Used to convert Savings to Financial Assets.
  7. Stock Index :  Number representing a section of the stock market.  Usually one stock exchange representing an exchange is popular.
  8. Two primary  ways of  calculating index – Price weighted and Market  Weighted Index. Price Weighted = Sum total of stock prices divided by number of stocks.

Market Weighted Index is Weight determined by market capitalization.

Section – 3  :   Queries on Stock Market Trading

  • In order to start trading, Set up a trading account with stock broker and transfer funds.
  • Basic flow  while trading stocks – Trade/ Order Initiation, Risk Management/ Order  routing,  order  matching and trade execution, Clearing and Settlement.
  • Bid Price – Price a buyer is willing to buy for security.
  • Offer Price – Price a seller is willing to accept, in order to part away with security.
  • Order Types – Market, Limit, Stop Loss and Combinations.
  •  Market Order – Instructs the broker to buy/sell security at the best price available in the market. Market Sell – Filled at highest available bid price.  Market Buy  – filled at lowest available offer price.  Advantage is that your entire  order  will be definitely executed. Dis advantage – cannot be sure at what price orders will be filled.
  • Limit  Order – Specify a limit price and a quantity. Limit buy order  – Filled at or below the limit price. Limit Sell Order – Filled at or above the  limit price.
  • Stop Loss Order –  Limit the  losses on your trade. Instructs the broker to get you out of trade if prices hit stop loss price. Two types- Stop Loss Market Order / Stop Loss Limit Order. Stop Loss  Market  Order exits at best available market price.  Stop Loss Limit Order  exits at best  available market price, subject to getting a fill at the limit price.
  •  Types of brokers – Full Service Brokers and Discount Brokers. Discount Brokers deal only with securities trading, and Full Service Brokers will provide lot more  services for a nominal price.
  • Website Availability, Minimum Deposit  amount, Product you’d like to trade and Interest offered by them for your  deposit are the key factors that should be considered before  choosing a stock broker.
  • Algorithmic Trading uses Mathematics and Computer Programming to reduce the effect of emotions and biases.Mainly used  for two key purposes – To  automate execution for  efficiently execute large orders ( Algorithmic Trading) or To place  automated trades in order to profit from them.
  • In order to try using Automated Trading, knowledge  on computer programming and Statistics is a must. It is not recommended for beginners.
  •  Quick stat on how much to invest  in Stocks –
    • Accumulated Savings – Savings in your lifetime
    • Emergency Fund =  6 months of your monthly essential investments
    • If Accumulated  Savings > Emergency Fund, Investment Portfolio = Accumulated Savings – Emergency Fund – Liquidity Requirements over  next 1-3 years.
    • If Investment Portfolio is 20-30% of savings:  100% Equity
    • If Investment Portfolio is 60% of savings : Allocate most of the capital in fixed.
    • Diversify Equity Allocation – Stocks ,Mutual Funds
  • Beginner Investor –
    • Invest most of the money in Mutual Funds,  Substantial but smaller portion in Individual Stocks.
    • Learn Investing skills and Invest based on your own analysis.
    • Passively invest  if you do not have time.
    • Ideally no more than 10% of Investment  in one security
  • Futures & Options :
    • Hedging ( To offset losses of other investments) is the primary purpose of Futures& Options.
    • Futures Contract is a derivative Instrument – Financial Contract between two parties.
    • Future Contracts on Stock – An agreement to deliver a stock at a certain price
    • The difference in agreed contract price  & prevailing stock trading price is paid by the seller to the buyer, and is called Cash Settlement in Futures Contract.
    • Options  give buyer the right but not obligation to buy/sell underlying. It can be stock, stock index, commodity or currency.  Option sellers is always obligated to buy or sell a security, depending on the type of option.
    • Call Option gives the buyer  the right but not obligation to buy an asset within a certain period at a certain price.
    • Put option  gives the buyer  the right but not obligation to sell an asset within a certain period  at a certain price.  Options premium is the profit for seller.
    • Only once you are profitable in Cash market, venture into Futures & Options
  • Mutual Funds –  Investment Corpus is created from the investment of many individual investors, and then  collectively managed by fund manager for investment into asset classes as per the fund nature.  It can be equity, debt, gold or real estate.
  • Corporate actions are actions on share capital that directly affect shareholders.
    • Dividends – Share of profits received by Shareholders
    • Share Repurchase – Company buys  back some  of its shares from the market
    • Bonus issue – Bonus made to existing shareholders. They receive shares for no extra  cost.
    • Rights Issue – Giving existing shareholders first rights to buy new shares of the company. Investors have the option to share their rights entitlement.
    • Mergers & Acquisitions – Deal with buying, selling, diving and combining similar entities and companies. Merger is consolidating two companies. Acquisition is when one company acquires another.
    • Two important dates : Ex-date and Record date.
    • Ex-Dividend and Ex-bonus : Dates to purchase security to be eligible for Dividend and Bonus.
    • Record Date : Date  on which company records are checked to determine eligibility.
    • Date of Payment : Date on which company will pay dividend or bonus according to the  records on record date.

Section – 4  :   Understanding Financial Statements

  • Financial analysis of a company is critical before investing into it.
  • Two main categories -> Debit, Equity
  • Debt is where Investor is concerned about Principal & Interest rate.
  • Equity is where Investor is concerned about Dividends and Gains from Growth.
  • Components of Financial Statement –
    • Balance Sheet : Statement of Financial Position
    • Profit & Loss : Statement of Income
    • Statement of Changes in Equity
    • Statement of Cash Flows
    • Notes to Account
    • Management Discussion & Analysis

Section – 5  :   Common Size  Analysis of Financial Statements

  • Liquidity – Ability to meet short term obligations ( Able to convert trade receivables to cash)
  • Solvency – Able to meet long term obligations (ability to manage assets and liabilities)
  • Here are the  steps for common size analysis  ofExpress each line item as percentage of total assets
    • Track changes in Balance sheet over period
    • Compare balance sheet of different companies over time
  • Here are the steps for  common size analysis of Income Statement
    • Divide each line item with revenue or total assets
    • Multiple revenue sources can be decomposed
  • Common Size Analysis of Cash Flow Statement
    • Divide each line item with revenue or total assets
    • Approach 1 : Cash inflow and outflow
    • Approach 2  : Net Revenue

Section – 6  :   Financial Ratio Analysis  of Financial Statements

  • Calculated using items from balance sheet/ income statement
  • Used to evaluate performance /compare valuations.
  • Various Financial Ratios –
    • Activity Ratios
    • Liquidity Ratios
    • Solvency Ratios
    • Profitability Ratios
    • Valuation Ratios
  • Activity Ratios measure how the company performs day to day tasks.
  • Liquidity Ratios measure how the company meets  short term obligations
  • Profitability Ratios measures a  company’s ability to generate profits
  • Valuation  Ratios  measure  the quantity of asset associated with company’s share

 

FinancialRatios

Section 7 : Benjamin Graham’s Value Investing Strategy

Benjamin Graham, widely regarded as the  Father of Value Investing lays down these  ground rules for Investing –

  • Sale  of atleast $100 million
  • Current Ratio > 2
  • Some Profit every year  for last 10 years
  • Earning growth of 33% over the  last 10 years
  • Price to Earnings < 15
  • Price to Book Value < 1.5
  • Regular and Consistent Dividends

Graham’s number = 22.5 X Earnings per share  X Book Value  per share

Section 8 : Technical Analysis

  • Price and Volume based analysis to predict future stock movement
  • Often displayed graphically for ease of use and decision making
  • Application not limited to any asset class
  • Logic of Technical Analysis –
    • Supply + Demand =  Prices
    • Change  in Supply AND/OR   Change in Demand =  Change in Price
  • Doesn’t need Investor to know in detail about the investment, and has no time frame
  • Investors with shorter time frame often prefer TA ( Technical Analysis)
  • Principles & Assumptions behind Technical Analysis –
    • Study of Collective Investment Psychology or Sentiment
    • Doesn’t believe in rational human behavior
    • Market  Trends & Patterns repeat themselves
    • Market reflects collective knowledge and sentiment
  • Technical Analysis  vs Fundamental Analysis
    • TA –  Focus on  Price  & Volume Data.  Objective.
    • FA –  Focus on Financial and Economic Analysis. Societal and Political Trends.

Section 9  –  Introduction to Charts

  • Charts are a graphical display of price and volume
  • Three kinds of charts –  Line  charts,  Bar Charts and Candle Stick charts
  • Charting Considerations
    • Y-axis log scale or arithmetic scale
    • Volume of security traded along with price  movement
    • Time Interval – Short term( within a day) or long term( by time periods)

Section 10 –  Candlestick Patterns

  • Candlestick data points –
    • Opening Price, Closing Price, High of the day, Low of the day
    • Spinning  Top – Indecision,  trading across wide  range of prices
    • Doji – Open and Close price same, so candlestick becomes a cross
    • Types of Doji
      • Long Legged – Indecision, typical cross
      • Gravestone Doji – Open Price = Close Price =  Low Price
      • Dragonfly Doji –  Open Price = Close Price = High Price
  • Reversal Candlesticks pattern –
    • Combination of Candlesticks that indicates  a reversal in trend
    • Pay attention to trends before the occurence of pattern
    • Bullish pattern is valid after a downward trend
    • Bearish pattern is valid after an upward trend
    • Reversal Patterns –
      • Engulfing Pattern – Can be  bullish  or bearish. Black candlestick engulfed by larger white candlestick – Bullish. The opposite is bearish.
      • Dark Cloud Cover – Start bullish, the next day opens higher than previous day but keeps falling continuously. And day turns bearish.
      • Piercing Line Pattern – Start bearish, the day opens lower than previous day but keep increasing continuously. And day turns bullish.
      • Evening Star – Three day pattern. Bullish, trading above the high – but close lower than open ( bearish) and then downward bearish.
      • Morning Star – Three day pattern. Bearish, trading above low – but close higher than low( bullish) and then upward bullish.
  • Candlestick Continuation Patterns –
    • Rising  Three Patterns –  First day – bullish, second, third and fourth day – two black and one white candlesticks all within the first white candlestick and then the fifth day candle stick is bullish and bigger white box.
    • Falling Three Patterns – First day – bearish, second, third and fourth day – two white and one black candlesticks all within the first black candlestick and then the fifth day bigger black candle stick with a new low.
    • Three white soldiers – Three upward white candlesticks, after a consistent rest phase, indicating an upward trend. Wicks are smaller, and there is alternate pattern between closing at high and low
    • Advancing Block Pattern  –  Second and Third candlestick shows upward tick. Indicates caution for investors.
    • Stalled Pattern – Two white long candlesticks, followed by a short candlestick.

Section 11 – Gaps

  • Gaps
    • Myth – A Gap created once must be closed.
    • Reality – Not all gaps will be closed.
    • Gaps that dont matter
      • Gaps in Thinly traded stocks
      • Gaps in  Ex-dividend ( after dividend)
    • Gaps that dont matter
        • Common or Area Gaps
        • Breakout or Breakaway Gaps
        • Continuation or Runaway Gaps
        • Exhaustion Gaps
    • Area Gap – Occurs in Price congestion formation. Heavily traded stock, gaps close in a matter of few days or weeks. Ends before formation ends.
    • Breakaway Gap – Appears in connection with price congestion,  Appears at the end of the formations. Alerts the investor that breakout in the prices has happened, Prices expected to move farther or faster or farther & faster.  but, this gap doesn’t tell how far the move may extend.
    • Runaway Gap –  Appears unrelated to congestion. Appears in random bursts. Also called measuring or continuation gap.  The no. of points of difference between gap is the same no. of points of difference after the gap.
    • Exhaustion Gap – Comes at the end  of the move. Indicates sharp fall, after excessive demand for not equal supply.  will  cover in 2 to 5 days.

Section 12   –  Support and Resistance

    • Support is an area of buying powerful enough to halt a downtrend.
    • Resistance is the price level or price range where up trends pause.
    • Support level has concentration of demand
    • Resistance level has concentration of supply
    • Price levels keep changing their roles as support or resistance level
    • Support becomes Resistance if prices trade below it
    • Resistance becomes Support if prices trade above it
    • Criteria to determine the relative strength of support or resistance – Volume, Distance traveled and Time elapsed.
    • Volume – The higher the volume, the greater support or resistance
    • Distance Travelled – Greater distance, higher resistance levels.
    • Length of time – Amount of time spent

Section 13 – Technical Indicators

  • Measure  based on price, market, sentiment or fund flows that can be used to predict changes in place
  • Price based indicators use current and past history of market prices
  •   Moving Averages –
    • Simple, Weighted or Exponential
    • Simple Moving Average = Average of Prices over 5 days( for 5 day average)
    • Weighted Moving Average = More weight to recent price, and progressively less price to older prices.
    • Exponential Moving Average = Fastest to respond to moving prices
    • Security in downward trend will trade below its  moving average
    • Security in upward trend will trade above its moving average
    • Penetration of  moving average may signal change of trend
    • Longer time frame = Significance of  Cross over
    • Act as important Support or Resistance Zone
  • Bollinger  Bands –
    • Three lines – Moving Averages, Lower and  Upper bands( using standard deviation)
    • Standard Deviation is a measure of volatility
    • Create Computerized Trading  Strategy
    • Will work when prices are less volatile
  • Oscillators
    • Used to discern extreme changes in sentiment
    • Oscillate between high and low or a high and low number
    • Used to spot convergence or divergence between indicator  and prices
    • Momentum Oscillators
      • Also called rate of change( ROC) oscillator
      • Oscillates around zero
      • ROC Oscillator crosses from below zero to above zero- buy for uptrend
      • ROC Oscillator cross from above zero to below zero – sell for downtrend
      • Divergence is  not an actionable indicator
    • Relative  Strength Indicator( RSI )
      • Compare  Security’s  Gains  over losses over a period of time
      • Momentum Oscillator, tells whether an asset is overbought or not.
      • Oscillates between 0 and 100
      • Values above 70 = Overbought Situation
      • Values less than 30  =  Oversold  situation
      • Less Volatile Stocks =  Lower RSI number
      • High Volatile Stocks =  Higher RSI number
      • 14 day time period used to calculate RSI
    • Stochastic Oscillators
      • Based on observation that, prices close near their highs in uptrend
      • Based on observation that, prices close near their lows in downtrend
      • Oscillates between 0 and 100
      • Oscillators consists  of %K line and %D line
      • 14 day time period used to calculate RSI
      • default oversold / overbought range =  20/80
      • %K line crosses %D from below = Bullish
      • %K line crosses %D from above  = Bearish
      • Should be used along with trend lines
    • MACD : Moving Average Convergence Divergence
      • Difference between short term and long term moving average of security price
      • MACD Line – Difference between Day 12 and Day 26 exponential moving average
      • Signal Line – 9 day average of MACD line
      • Oscillates around 0, has no lower or upper limit
      • MACD Line crossing Signal line from below,  Bullish
      • MACD Line crossing Signal line from above, Bearish
      • Look for MACD Extremes ( Outside normal range)
      • Use trend lines to detect divergence

Section 14 – A Trading Pattern for all time frames and asset classes

  • What makes a great trading pattern?
    • Detailed Trading Pattern DNA
    • Clear Confirmation Signals
    • Complete Trading Strategy
  • Trade Setup
    • Ending Diagonal Triangle or Wedge
    • Rising Pattern or Falling Pattern
    • Rise / Fall –  Refer to overall price movement
    • Rising Pattern :  Up and on completion, Goes Down.

risingwedge

  • Falling Pattern : Down and on completion, Goes Up.
  • fallingwedge.JPG
    • Three things to consider – Trigger price, Stop loss price and Profit booking price

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Section 15 – Introduction to Options 

  • Option is a contract that gives the buyer of the contract the right but not the obligation to buy or sell the underlying at a specific price within a specific price period.
  • In Financial markets,  underlying is Stock, Commodity, Currency, etc.
  • Key terms –
    • Call Option : Gives holder  right to buy, seller obligated to sell
    • Options Premium : Money paid to reserve the underlying
    • Strike Price :  Price to be totally paid while taking over the underlying
    • Time to Expiry :  Duration seller will hold their underlying
    • Put Option : Gives holder right to sell,seller obligated to buy
    • Strike Price  related to Stock Price :
      • Current stock price >  Strike Price : In the Money ( ITM)
      • Current stock price =  Strike Price : At the Money( ATM)
      • Current Stock Price < Strike Price :  Out of the Money(OTM)
    • Options with Only intrinsic value are trading at Parity
    • Options with time value are trading at Premium over parity
    • Two styles of exercising styles –
      • American Style  : Can be exercised anytime from the  time buyer enters contract until it expires
      • Eurpoean Style : Exercised only at expiration
    • Eg. BUY 1 AAPL 100 Dec Call 170 at $3
      • BUY – Buying a call option
      • 1 – Size  of the contract
      • AAPL – Apple share
      • 100 – Quantity of shares in the option contract
      • Dec – last date by which the  shares must be bought at this price
      • call – Type of contract
      • 170 – Strike Price ( price at which call owner will have the option to buy the security before expiry)
      • $3 – Price of the premium / Option. Mentioned per share( $300 to pay, here)
      • if AAPL is trading at $71,Premium $3 –  Intrinsic value of $1 and Time value of $2
      • Time Value =  Total Options Premium – Intrinsic Value

Section – 16 : Basic Option Strategies

  • Buying CALL Option : Benefits from the rise in price of  underlying
    • Profitable if stock price >  stock price after expiry
    • Not profitable if stock price < stock price after expiry
  • Buying a PUT Option : Benefits from the fall in the price of underlying
    • Profitable if stock price < stock price after expiry
    • Not profitable if stock price >  stock price after expiry
  • Long Stock +  Long Put (same stock) =  Protective Put
  • Selling CALL Option :  Keep the premium if the stock price goes  below the stock price at expiry. The seller wont sell, and will get a profit. Will go to loss as the stock price keeps going up.
  • Covered Call Spread : Stock and selling CALL option on the same stock.
  • Selling PUT Option :  Beneficial if price of stock remains above the strike price of the option. In this case, the seller keeps the entire premium, which is the profit.

Section – 16 : Option Greeks

  • What  drives  options prices?
    • Price  of the underlying
    • Expiry Date
    • Volatility in the price  of underlying
  • Black Scholes Option Pricing Model
    • Inputs are Stock Price, Strike Price, time to expiry, Interest rate, dividend and volatility. All other parameters except Strike price is volatile.
    • Output is the Theoretical value of Stock
    • Output is determined first, and input values are adjusted accordingly
  • Option Greeks represents the sensitivity of price of option to change in variables
    • Delta
    • Gamma
    • Theta
    • Vega
    • Rho
  • Delta
    • Rate of  change of Option’s price relative to the price of security
    • Delta of CALL remains between 0 and 1
    • Delta of PUT remains between -1 and 0
    • Absolute value between 0 and 1.
    • Delta for IN THE MONEY > 0.5
    • Delta for OUT OF THE MONEY < 0.5
    • Delta for AT THE MONEY =  0.5
    • More towards  ITM =  delta approaches 1
    • More towards OTM =  delta approaches 0
    • Call Option : Delta approaches 1 as prices rise,  0 as prices fall
    • Put Option : Delta approaches -1 as prices fall, 0 as prices rise
  • Gamma
    • Tracks dynamic nature  of Delta
    • Rate of change of an options delta for change in price
    • second derivative of price of option with respect to stock
    • Factors  affecting Gamma
      • ITM & OTM – Delta changes not much,  ATM lot of changes
      • So, ITM/ OTM have low gamma,  ATM has high gamma value
  • Theta
    • Theta measures the time decay, not a constant
    • Measures rate of change of option’s price for unit change in time
    • Variables influencing Theta
      • Moneyness of the value ( ITM/ OTM / ATM)
      • Volatility( Directly proportional )
      • Days to expiration
  • Vega
    • Relationship between price of  Option and Volatility
    • Change in Option price for 1 unit change in implied volatility
    • Variables influencing Vega
      • Moneyness of the value ( ITM / OTM / ATM)
      • Implied volatility
      • Days to expiration
  • Rho
    • Measures the change in options value relative to Interest rates
    • Higher time to expiration has higher impact
    • Rho is Negligible for Short term options
  • Put Call Parity
    • Stock =  Call + Strike –  Interest – Put + Dividend
    • Call =  Stock + Put – Strike + Interest – Dividend
    • Put = Call – Stock  + Strike  – Interest + Dividend